Monday, January 14, 2013

First published on December 7, 2012 via newletter 'Fiscal Cliff Notes.'
In keeping with the castaway analogy of last week, this week’s developments, particularly among Republicans in the US House regarding a Fiscal Cliff deal reached by the end of the year is akin to a sail on the horizon. This begs the question of how big a sail; skiff or schooner?
All sources indicate that Speaker Boehner (R-OH) wants to negotiate a settlement by year end and floated the Rep. Cole (R-OK) trial balloon to socialize within his caucus an income tax hike. Sen. Schumer (D-NY) has pressed for a compromise at $1 million, but that’s too high for the White House and would give Schumer too much credit. Meanwhile, Republicans in the House are getting comfortable with a $500,000 threshold and that’s likely where the tax negotiation will begin to gel at between current and Clinton rates.
If the morose demeanor among some GOP Senate staffs when discussing the Fiscal Cliff is any indication, the sense is House Republicans cave on tax hikes before the White House does so on entitlements. A bipartisan letter this week from 80 House Members urging a settlement that includes new revenue, spending reductions and entitlement reform is significant only because 40 GOPers signed (two of the letter’s instigators are not returning in 2013). It is safe to assume Boehner’s socialization efforts are working. Boehner’s purge of Tea Party Republicans from key committees was a clear sign that his caucus best get in line or lose assignments and seniority – and that includes a Fiscal Cliff deal when it comes. Boehner is setting a tone to avoid a 113th Congress being like the 112th when the tail (GOP freshman) wagged the dog (GOP leadership).
The White House is more likely to concede on raising Medicare’s eligibility age than adjusting Social Security’s annual inflation: assume Social Security is off the table and a non-starter just as Boehner’s effort to link the Affordable Care Act to negotiations went nowhere. To get these concessions House Republicans will also be pressed by the White House to agree to a debt ceiling increase, further complicating an accord.
If Washington takes the country over the Fiscal Cliff, the sectors hardest hit by sequestration ($1.2 trillion in spending cuts over the next decade) are defense, higher education, healthcare and US municipalities.
The week ended with Speaker Boehner reporting there’d be no progress until President Obama makes a counteroffer to Republican’s proffer of Erskine Bowles’ spit-balled plan from 2011 testimony before the Joint Select Committee on Deficit Reduction that succeeded the Simpson Bowles Committee report. A public White House counteroffer is unlikely as the WH maintains and continues to press the advantage.

Filibuster Reform: Senate Minority Leader McConnell (R-KY) does not think Majority Leader Reid (R-NV) will reform Senate rules – and he’s mistaken. Reid has been personally whipping his caucus to eliminate the ability to filibuster certain procedures (motion to proceed is the most likely to be reformed) with 51 votes (the constitutional option – versus the nuclear option which applies if done mid-session, not at the opening of the session). What this means is it will be more difficult for the Senate GOP to derail Democratic job legislation (potentially stimulus funding but also bills specific to the private sector). Look for attempts to reform Reverse Morris Trusts with the intent to tax those transactions and prevent a merger in the guise of a tax free transfer. Also look for a Financial Speculation Tax (0.03% of all trades on stocks, bonds, derivatives and others) per Sen. Harkin’s (D-IA) bill.

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